Digital reboot for traditional banking

Financial Services in the middle of a perfect storm

When talking about this sector’s response to digitization, it's useful to reference what futurists like Brett King talk about, on innovation; Analogy-driven tends to be incremental and First Principles-driven tends to be radical.

Innovation by Analogy

Brett says, “(it) works on the philosophy that as engineering capabilities and knowledge improve, engineers find better ways to iterate...finding technical solutions to previous limitations… - the work is derivative.” This is largely the approach that India’s banking sector has favoured to date. Today, India’s banking industry is definitely making more digital investments but the returns are more incremental in nature.

Innovation by First Principles

Our belief is that the real opportunity for the banking industry lies in driving innovation from the first principles. In moving to the first principles approach, India’s banking sector will adopt, “the practice of actively questioning every assumption you think you ‘know’ about a given problem or scenario — and then creating new knowledge and solutions from scratch.” And, the best example of how this has panned out is China’s payment and banking sector.

It’s interesting that banking, an industry always known to be tech-savvy chose not to take digital strides in the more recent past. At a time when fintechs are driving innovation and creating serious disruption Indian banks are increasingly adopting emerging technologies (ref. Image 2), however, it’s time for some serious catch-up, and get back to leading with technology.

ThoughtWorks view of how Indian banks are adopting emerging Technologies  (based on ThoughtWorks Technology Radar framework)

The kind of opportunities that India’s banking sector can benefit from, on account of the innovation reboot can be segmented into four:
 

Embrace the Ecosystem:

Most banks today are tied up by their legacy infrastructure which warrants banks to modernize their legacy, implement a “lego-like” approach and collaborate with the ecosystem of vendors, partners and fintechs to re-define their technology landscape; to potentially move to Banking as a Service Business model.

Empathy Driven Banking:

The guiding principle here is to understand customers’ needs (and aspirations) and preemptively meet them with contextualized financial solutions. Considering we live in the era of intelligent banking that’s powered by emerging tech like AI and ML - conversational banking through bots and robo-advisors is emerging as a delivery mechanism of such solutions. These new-age mediums know how to respond to a range of queries relating to customer on-boarding, transaction-specific, product recommendations and more.

Empathy-driven banking also promotes inclusive growth where every country’s banking institutions face their own set of unique challenges and opportunities. Especially for India, the meaningful and quick adoption of digital technology will help the country’s banking industry develop services and products that are hyper-personalized to its varied customers’ very specific financial needs.

Embed into Customers’ Lives:

Banks are sitting on vast amounts of customer-centered knowledge and insights. The only way to go beyond providing traditional financial services and become an integral part of the customers’ non-financial ecosystem is to leverage this invaluable customer data. Banks have to apply a ‘shift-left’ and ‘shift-right’ view to understand customer needs end to end.

Elevate Trust Index:

Banking’s ideal scenario is an ‘intelligence-empowered financial sector.’ However, it is important to recognize that one of the biggest hurdles to such an ideal is the lack of trust in financial institutions. Edelman’s 2017 and 2018 trust barometers point to the complete lack of progress in the trust scores for the financial sector. But, that could slowly reverse if banks were to leverage Open APIs and blockchain based solutions to promote transparency.

The good news is that India already has the technological foundation in place, on which to build disruptive banking businesses. India Stack, JAM - the Jan Dhan, mobile-based UPI (unified payments interface), and Open API enable frictionless interactions and low-cost transactions. The next step is figuring out how our financial sector can enable this array of tech to address the above described (four) opportunities.

A (print) version of this article appeared in Mint.